Oil to Steel: History of the ‘Nuclear Option’ Option’ in Trump Trade Kit

By: | at 04:00 AM | Maritime  

What do watches, oil, uranium and screws all have in common? At one time or another they were argued to be critical to America’s national defense. For the past five-and-a-half decades, industrial groups and government officials have occasionally used Section 232 of the 1962 Trade Expansion Act to determine whether imports of those materials and others represent a threat to national security. Under that law, known as the nuclear option on trade, the Commerce Department conducts a report and submits recommendations to the president, who decides whether to impose trade barriers if it’s determined that foreign sales are undermining domestic security or the defense industry. The Trump administration is now using Section 232 to probe whether cheap imports of steel and aluminum are harming American metal producers and eroding their ability to innovate as well as retain workers, thus endangering national security. The action fits Trump’s tough talk on trade and one of his key campaign planks to bring back manufacturing jobs from overseas. Commerce started its investigations in April and has 270 days to finish, though the steel report was originally expected as early as last month. As we wait for the studies to drop, let’s look back at history for a guide into previous investigations.

Throughout the 1970s, a period when the U.S. and other western countries were experiencing an energy crisis, the government investigated American oil imports four times under Section 232. It probed oil again in the late 1980s and in the 1990s, both before and after the first Iraq War. Before the Berlin Wall fell in the late 1980s, when fear of a nuclear war with the Soviet Union loomed, the U.S. used Section 232 to look into uranium. In all but a few instances, the reports come back saying that imports of the material had no adverse effect on national security. When they did constitute a threat, very little action was actually taken.

“Trade protection is an extremely blunt instrument and you can do a lot of collateral damage with it,” said Rodney Ludema, an economics professor at Georgetown University.

Businesses have been the biggest users of Section 232. Corporations and trade groups have requested more than half of the investigations, including those that delved into plastic injection molding, circuit breakers and machine tools, according to data from Commerce. One group, the Anti-Friction Bearing Manufacturers Association, asked for three investigations, and General Electric Co. requested two. Ronald Reagan presided over the most probes of any president—seven. A variety of industries have sought protection for an even wider variety of products over the years, including everything from photograph shutters to wooden boats. Then-President Lyndon B. Johnson requested an investigation into watches, movements and parts in 1965 to see if the Pentagon was dependent on imports of such timing devices for use in weapons and other military supplies.

The last 232 investigation was conducted in 2001 under President George W. Bush at the request of two Democratic congressmen. That probe looked into iron ore and semi-finished steel and ended with Bush taking no action against imports.

In fact, presidents haven’t acted on 232 investigations in decades, even though some found imports constituted threats to national security. The reason, according to Georgetown’s Ludema, is because the World Trade Organization has given countries the ability to contest U.S. action, potentially opening the door to trade wars.

“I don’t understand what we get by trying these 1970s tools in 2017,” said Caroline Freund, a senior fellow at the Peterson Institute for International Economics. “Hard to imagine how this will be productive.”


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